The Commerce Commission today published its summary and analysis of Telecom’s regulatory financial statements for the year ending 30 June 2010. As a result of its analysis, the Commission concludes that the regulatory financial statements are unreliable for regulatory purposes.

Part 2B of the Telecommunications Act 2001 requires Telecom to publish financial statements and other information about its network, wholesale and retail business activities and services in a form determined by the Commission. These statements should provide useful information to the telecommunications industry about the operation and behaviour of Telecom.

The Commission considers that Telecom’s valuation of key assets is overstated, and in particular, that Telecom’s access network is overvalued by over a billion dollars. This overestimation has a flow on effect throughout the regulatory financial statements and undermines the reliability of the information.

“In valuing its assets, Telecom is required to use processes which are objectively justifiable and reasonable,” said Dr Ross Patterson, Telecommunications Commissioner. “However, Telecom has not satisfied the Commission that its 2009/10 trenching discount factors are objectively justifiable and, in particular, that they reflect economies of scale. As a consequence, a number of costs, including the cost of providing rural phone lines - for which Telecom has reported a loss - are likely to be substantially overstated.”

The Commission proposes to consult on a range of changes to the requirements for 2010/11 and on whether Telecom should be required to re-publish its 2009/10 regulatory financial statements to address this overestimation issue.